TMI Blog1984 (1) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... n partnership with another advocate. The assessee took the premises at 710, Ballimaran Chandni Chowk, Delhi, on rent in 1947-48. Daring the relevant accounting year the assessee surrendered the tenancy rights of the first floor of the said premises. The assessee received on March 18, 1966, an amount of Rs. 30,000 for surrendering the said premises in favour of 'All India Bank Employees Association'. The ITO took the view that the assessee's tenancy rights vis-a-vis 710, Ballimaran, Chandni Chowk, Delhi, represented a capital asset and that the amount of Rs. 30,000 was assessable as capital gains under s. 45 of the Act. The ITO accordingly included the amount of Rs. 25,000 as capital gains being the net amount after allowing the statutory exemption, in the assessee's total income rejecting the assessee's contention to the contrary. An appeal was filed by the assessee before the AAC who held that the tenancy rights did represent a capital asset but no capital gains could arise to the assessee by surrender of the rights, because the tenancy rights had not cost the assessee anything and that they were not purchased by him. The AAC deleted the amount of Rs. 25,000 from the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " is a term of the widest import and subject to any limitations which the context may require, it signifies every possible interest which a person can acquire, hold and enjoy (See Ahmed G. H. Ariff v. CWT [1970] 76 ITR 471 (SC)). The word " transfer " as defined in s. 2(47), in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. The assessee took the premises at 710, Ballimaran, Chandni Chowk, Delhi, on rent in 1947-48. The grant of the tenancy rights to the assessee did not cost him anything and they were not purchased by him. The AAC had accepted this as a fact and there is no challenge to this finding before the Tribunal. On March 18, 1966, the assessee received an amount of Rs. 30,000 for surrendering his tenancy rights. In my opinion, although it is disputed by the assessee, the tenancy right is property. A lease of immovable property is a transfer of a right to enjoy such property. It is a demise, i.e., a partial transfer by way of lease. Such an interest of a tenant is a right to property within the meaning of article 19(1)(f) of the Constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matters. The nomenclature used may not be decisive or conclusive but it helps the courts, having regard to the other circumstances, to ascertain the intention of the parties (See CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422 (SC)). Rent is a revenue expenditure and does not go in the cost of the capital asset. The periodic payments of rent made by the assessee are thus not for the acquisition of the capital asset of leasehold rights. The question then arises whether this transfer of a capital asset gives rise to a capital gain for the purpose of the Act. At the relevant time, ss. 45, 48 and 55(2)(i) read as follows: "45. Capital gains.-(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B and 54D, be chargeable to income-tax under the head 'Capital gains' and shall be deemed to be the income of the previous year in which the transfer took place." "48. Mode of computation and deductions.-The income chargeable under the head 'Capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee took the premises on rent in the year 1947-48. The tenancy rights had not cost the assessee anything and they were not purchased by him. On March 18, 1966, the assessee received an amount of Rs. 30,000, i.e., " pagri ", for relinquishment of the tenancy rights or surrender of the tenancy rights. A variety of elements contribute in the making of the value of the tenancy rights, but there can be no account in value of the factor producing it. It is a composite thing referable in part to its locality, in part to the use to which the premises are put, in part to the nature of the business carried if commercial premises, in part to the success of the business conducted, in part of the trend of the customers or litigants, in part to the likelihood of the competition and in part to several other unpredictable factors, like whims and eccentricities of the persons wanting to acquire the tenancy rights. The value may fluctuate from one day to another day depending upon the uncertain demand and supply of comparable premises. It may increase or it may decrease, but such increase or decrease is not like the periodic waning and waxing of the moon. In the year 1947-48 there was no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch indicate that s. 48 is concerned with an asset capable of acquisition at a cost. Section 50 is one such provision. So also is subs. (2) of s. 55. None of the provisions pertaining to the head " Capital gains " suggests that they include an asset in the acquisition of which no cost it all can be conceived. Yet there are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded. The elements which create it have already been detailed. In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain." In a subsequent case before the Bombay High Court in Evans Fraser and Co. Ltd. v. CIT [1982] 137 ITR 493, a question arose about the transfer of goodwill acquired by the assessee from another. Acquisition of the goodwill of the business is, without doubt, acquisition of a capital asset, but merely because it is a capital asset, it does not mean that it becomes automatically subject to the charge of capital gains tax. The Bombay High Court m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clive Mills Co. Ltd. [1982] Tax LR 630 ; [1984] 148 ITR 14 the Calcutta High Court was concerned with the sale of loom hours by the assessee. No cost bad been incurred by the assessee in the acquisition of loom hours. It was held : ".. ...... capital gain arises only on the transfer of a capital asset which has actually cost to the assessee something. Such cost in the context of the I.T. Act being cost in terms of money cannot apply to transfer of capital asset which did not cost anything to the assessee in terms of money in its creation or acquisition. In the present case also the acquisition of the loom hours did not cost anything to the assessee. The sale of loom hours, therefore, does not attract the provision of s. 45 of the I.T. Act, 1961. The additions on account of sale proceeds of loom hours in both the years are accordingly deleted." It is not possible to apply the computation sections for quantifying the profits and gains on the transfer of leasehold rights which were acquired by the assessee without any cost. The mode of computation and deduction set forth in s. 45 provided the principal basis for quantifying the income chargeable under the head "Capital gains." Wha ..... 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